Int. Rate Swap

Problem 23-4 Carter Enterprise give the gate geld floating- score debt at LIBOR +2% or headstrong at 10% Brence Manufacturing can issue floating- roll debt at LIBOR +3.1% or rooted(p)0reate at 11% Carter issues floating rate debt and Brence issues rooted(p)-rate salary Swap Carter makes a fixed-rate prosecute of 7.95% to Brence and Brence makes a payment of LIBOR to Carter. Usually, floating-rate payments of most SWAPs are based on LIBOR Carter fees: Borrows stock-still Brence Payments :Borrows Fixed , Floating , SWAPS for FixedSWAPS for Floating ------------------------------------------------- Payment to lgoaler (LIBOR+2%) Payment to Lender -11% ------------------------------------------------- Payment from Brence +LIBOR Payment variance Carter +7.95% ------------------------------------------------- Payment to Brence -7.95% fixed Payment to Carter - LIBOR ------------------------------------------------- unclutter Payment by Carter - 9.95% fixed nett Payment by Brence (LIBOR+3.05%) a) Therefore, Brence issues fixed-rate payment at 11%.

Carter provide be receiving floating rate payments from Brence; this payments decree be cast at LIBOR that are multiplied by notional amount. Conversely, Carter will make fixed or decide payments to Brence for duration of the swap. Theses fixed payments are subject to the level of fixed interest order at the time of the agreement and the creditworthiness of the twain companies. Hence, because of SWAP Carter rate paid is 9.95%. The 7.95% rate re! sulted from 7.95% + 2% LIBOR. Therefore, the lolly Payments of Carter to Brence is 9.95% versus 10% fixed-rate debt if Carter would confine issued fixed rate debt directly. In the end Carter, received what had desired. Carter makes fixed-rate debt payment lower than 10% and the SWAP appears to be beneficial for Carter. In the same time Brence received a floating-rate debt payment. The SWAP Net Payments...If you want to get a ripe essay, order it on our website: BestEssayCheap.com

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